Home buyers loan gets worried reaction from economists, critics

VANCOUVER (NEWS1130) – The BC government’s plan to offer some first-time home buyers five-year interest and payment-free loans is getting two thumbs way down from several critics who say it will increase housing prices, encourage people to take on risker mortgages, and fill developer’s pockets.

Premier Christy Clark announced the province will match up to five per cent of a home buyer’s down payment, to a maximum of $37,500, in the form of 25-year loan that will be interest and payment free for the first five years.

“This loan supposed to make it easier for first time home buyers to get into the market, but when you have more people in the market, that’s going to increase the demand,” UBC economics associate professor Joshua Gottlieb says. “And since it’s so hard to build new housing in Vancouver and Metro Vancouver, the only thing that an increase in demand can do is lead to higher prices.”

Buyers who have already stretched themselves to get a home, may consider stretching even further and risk breaking if interest rates go up in five years, Gottlieb worries.

“And higher rate tend to lower prices so you could be having a higher mortgage payment at the same time the house might have lost some value,” he says. “Anyone thinking about buying a house has to consider the fundamentals. Is this something I can really afford?”

Gottlieb says building more homes and taxing empty ones is the way to go and the government shouldn’t be risking tax payer money with loans.

Canadian Debt

Consolidated Credit Counselling Services of Canada executive director Jeff Schwartz says the loans may make it easier for buyers that qualify for a mortgage to manage their payments. However he is worried about those people who just barely qualified and may consider adding more debt onto their shoulders.

“It could make it easier to over reach and, as a result, people who are already struggling could struggle even more, or if they are too close to the line, this is something that could put them over the edge,” he says.

Schwartz is concerned, however, that Canadians in general are taking on too much debt and will ultimately suffer. He encourages people to focus on saving by setting aside a portion of each paycheck for an emergency or big purchase fund.

NDP

NDP housing critic David Eby says it he can’t believe the Liberals’ solution to the housing affordability crisis is to add more debt onto potential BC homeowners.

“Putting the economy at risk if there’s a correction, to encourage people to borrow money to get into this housing market at the peak of the market, when they could easily end up underwater not just for a mortgage, but also for a loan for a down payment, makes no sense at all,” Eby says.

The loan is a “Christmas gift” for developers, whose properties may increase in value as demand rises, Eby says. He would like to see BC use its own land assets to build workforce housing.